Orneal and Martha Kooyers, et al. - Page 31

                                       - 31 -                                         
          “investments” promoted by Little, Fritts, and Rowe were in                  
          reality scams, and petitioners never recovered their money.  The            
          “cash for title” loan program investment was in reality a large-            
          scale, international Ponzi scheme.                                          
               Little, Fritts, and Rowe represented to petitioners that the           
          investment would provide high-interest consumer loans.  Contrary            
          to those representations, most of the proceeds were used to pay             
          interest and principal to earlier investors, as well as                     
          commissions and fees to the promoters.  Petitioners did not make            
          a profit on the investments.  Rather, they lost most of the money           
          they invested.                                                              
               The weight of authority holds that certain distributions to            
          taxpayers in Ponzi or pyramid schemes (where proceeds of later              
          investors are used to pay distributions to early investors,                 
          lending an appearance of legitimacy to a fraudulent “investment”)           
          are current income.  Parrish v. Commissioner, T.C. Memo.                    
          1997-474, affd. 168 F.3d 1098 (8th Cir. 1999); Premji v.                    
          Commissioner, T.C. Memo. 1996-304, affd. without published                  
          opinion 139 F.3d 912 (10th Cir. 1998); Wright v. Commissioner,              
          T.C. Memo. 1989-557, affd. without published opinion 931 F.2d 61            
          (9th Cir. 1991); Murphy v. Commissioner, T.C. Memo. 1980-218,               
          affd. per curiam 661 F.2d 299 (4th Cir. 1981); Harris v. United             
          States, 431 F. Supp. 1173 (E.D. Va. 1977).  In all but one of the           
          above cases, however, the taxpayers were early investors who had            






Page:  Previous  21  22  23  24  25  26  27  28  29  30  31  32  33  34  35  36  37  38  39  40  Next

Last modified: May 25, 2011